UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No.  )

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MOOG, Inc.

(Name of Registrant as Specified In Its Charter)

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

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MOOG INC., EAST AURORA, NEW YORK 14052

 

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

 

NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of MOOG Inc. will be held in the Auditorium of the Albright-Knox Art Gallery, 1285 Elmwood Avenue, Buffalo, New York, on Wednesday, January 9, 2008, at 9:15 a.m., for the following purposes:

 

1.  To elect THREE directors of the Company, one of whom will be a Class A director elected by the holders of Class A shares to serve a three-year term expiring in 2011, and two of whom will be Class B directors elected by the holders of Class B shares to serve a three-year term expiring in 2011, or until the election and qualification of their successors.

 

2.  To consider and approve the Moog Inc. 2008 Stock Appreciation Rights Plan.

 

3.  To consider and ratify the selection of Ernst & Young LLP, independent registered certified public accountants, as auditors of the Company for the 2008 fiscal year.

 

4.  To consider and transact such other business as may properly come before the meeting or any adjournment or adjournments thereof.

 

The Board of Directors has fixed the close of business on November 28, 2007 as the record date for determining which shareholders shall be entitled to notice of and to vote at such meeting.

 

SHAREHOLDERS WHO WILL BE UNABLE TO BE PRESENT PERSONALLY MAY ATTEND THE MEETING BY PROXY. SHAREHOLDERS WHO WILL VOTE BY PROXY ARE REQUESTED TO DATE, SIGN AND RETURN THE ENCLOSED PROXY OR USE THE INTERNET OR TELEPHONE VOTING OPTIONS AS DESCRIBED ON THE PROXY CARD. THE PROXY MAY BE REVOKED AT ANY TIME BEFORE IT IS VOTED.

 

By Order of the Board of Directors

 

John B. Drenning, Secretary

 

December 10, 2007

 

PROXY STATEMENT
FOR ANNUAL MEETING OF SHAREHOLDERS OF

 

TO BE HELD IN THE AUDITORIUM OF THE ALBRIGHT-KNOX ART GALLERY

1285 ELMWOOD AVENUE, BUFFALO, NEW YORK

ON JANUARY 9, 2008

 

This Proxy Statement is furnished to shareholders of record on November 28, 2007 by the Board of Directors of MOOG Inc. (the “Company”), in connection with the solicitation of proxies for use at the Annual Meeting of Shareholders on Wednesday, January 9, 2008, at 9:15 a.m., and at any adjournments thereof, for the purposes set forth in the accompanying Notice of Annual Meeting of Shareholders. This Proxy Statement and accompanying proxy will be mailed to shareholders on or about December 10, 2007.

 

If the enclosed form of proxy is properly executed and returned, the shares represented thereby will be voted in accordance with the instructions thereon. Unless otherwise specified, the proxy will be deemed to confer authority to vote the shares represented by the proxy “FOR” Proposal 1, the election of directors, “FOR” Proposal 2, the approval of the Moog Inc. 2008 Stock Appreciation Rights Plan and “FOR” Proposal 3, the ratification of Ernst & Young LLP as independent auditors for the fiscal year 2008.

 

Any proxy given pursuant to this solicitation may be revoked by the person giving it insofar as it has not been exercised. Any revocation may be made in person at the meeting, or by submitting a proxy bearing a date subsequent to that on the proxy to be revoked, or by written notification to the Secretary of the Company.

 

GENERAL

 

The Board of Directors has fixed the close of business on November 28, 2007 as the record date for determining the holders of common stock entitled to notice of and to vote at the meeting. On November 28, 2007, the Company had outstanding and entitled to vote, a total of 38,354,552 shares of Class A common stock (“Class A shares”) and 4,556,186 shares of Class B common stock (“Class B shares”). Holders of a majority of each of the Class A and Class B shares issued and outstanding and entitled to vote, present in person or represented by proxy, will constitute a quorum at the meeting.

 

Holders of Class A shares are entitled to elect at least 25% of the Board of Directors, rounded up to the nearest whole number, so long as the number of outstanding Class A shares is at least 10% of the number of outstanding shares of both classes of common stock. Currently, the holders of Class A shares are entitled, as a class, to elect three directors of the Company, and the holders of the Class B shares are entitled, as a class, to elect the remaining eight directors. Other than on matters relating to the election of directors or as required by law, where the holders of Class A shares and Class B shares vote as separate classes, the record holder of each outstanding Class A share is entitled to a one-tenth vote per share, and the record holder of each outstanding Class B share is entitled to one vote per share on all matters to be brought before the meeting.

 

The Class A director and the Class B directors will be elected by a plurality of the votes cast by the respective class. The 2008 Stock Appreciation Rights Plan, ratification of the auditors and the other matters submitted to the meeting may be adopted by a majority of the Class A and Class B votes cast, a quorum of 19,177,277 Class A shares and 2,278,094 Class B shares being present.

 

In accordance with New York law, abstentions and broker non-votes are not counted in determining the votes cast in connection with the 2008 Stock Appreciation Rights Plan or the ratification of the selection of Ernst & Young LLP as auditors of the Company for the 2008 fiscal year. However, abstentions and broker non-votes will have the effect of a negative vote on the proposed 2008 Stock Appreciation Rights Plan, which requires the vote of a majority of the outstanding Class A and Class B shares present at the meeting voting as one class. Votes withheld in connection with the election of one or more nominees for director will not be counted and will have no effect.

CERTAIN BENEFICIAL OWNERS

 

Security Ownership

 

The only persons known by the Company to own beneficially more than five percent of the outstanding shares of either class of the voting common stock of the Company as of November 28, 2007 are set forth below.

 

 

 

 

 

Moog Family Agreement as to Voting

 

The Moog Family Agreement as to Voting is an Agreement among certain relatives of the late Jane B. Moog and includes her son-in-law, Richard A. Aubrecht. The Agreement relates to 151,434 Class A shares and 271,365 Class B shares, owned of record or beneficially by members of the Moog family who are party to the Agreement, as well as 105,047 Class A shares and 89,614 Class B shares held by Richard A. Aubrecht, exclusive of currently exercisable options. Each party to the Agreement granted an irrevocable proxy covering that party’s shares of stock to a committee which is required to take all action necessary to cause all shares subject to the Agreement to be voted as may be determined by the vote of any four of its members. The Agreement contains restrictions on the ability of any party to remove shares of stock from the provisions of the Agreement, to transfer shares or to convert Class B shares to Class A shares. The Agreement continues in force until December 31, 2015, and is automatically renewed thereafter from year to year unless any party to the Agreement gives notice of election to terminate the Agreement.

 

Section 16 Beneficial Ownership Reporting Compliance

 

During fiscal year 2007, the executive officers and directors of the Company timely filed with the Securities and Exchange Commission the required reports regarding their beneficial ownership of Company securities.

 

PROPOSAL 1 — ELECTION OF DIRECTORS

 

One of the three classes of the Board of Directors of the Company is elected annually to serve a three-year term. Three directors are to be elected at the meeting, of which one is to be a Class A director elected by the holders of the outstanding Class A shares, and two of whom are to be Class B directors elected by the holders of the outstanding Class B shares. The Class A nominee and the Class B nominees will be elected to hold office until 2011, or until the election and qualification of their successors. The persons named in the enclosed proxy will vote Class A shares for the election of the Class A nominee named below, and Class B shares for the election of the Class B nominees named below, unless the proxy directs otherwise. In the event any of the nominees should be unable to serve as a director, the proxy will be voted in accordance with the best judgment of the person or persons acting under it. It is not expected that any of the nominees will be unable to serve.

 

Nominees, Directors and Named Executives

 

Certain information regarding nominees for Class A and Class B directors, as well as those directors whose terms of office continue beyond the date of the 2008 Annual Meeting of Shareholders, and Named Executives, including their beneficial ownership of equity securities as of November 28, 2007, is set forth on the next page. Unless otherwise indicated, each person held various positions with the Company for the past five years and has sole voting and investment power with respect to the securities beneficially owned. Beneficial ownership includes securities which could be acquired pursuant to currently exercisable options or options which become exercisable within 60 days of the date of this Proxy Statement.

 

All of the nominees have previously served as directors and have been elected as directors at prior annual meetings.

The Board of Directors recommends a vote FOR the election as Directors the Nominees listed below.

 

 

 

 

 

CORPORATE GOVERNANCE

 

Corporate Governance Guidelines

 

Our Board of Directors and management are committed to effective corporate governance practices. Our Corporate Governance Guidelines describe the governance principles and procedures by which the Board functions. The Board annually reviews the Corporate Governance Guidelines and the Board committee charters in response to corporate governance developments, including regulatory changes, and recommendations by directors in connection with Board and committee evaluations.

 

Our Corporate Governance Guidelines and our Board committee charters are available on our website at www.moog.com by selecting Investors and then Corporate Governance. Stockholders may request a free printed copy of our Corporate Governance Guidelines from our investor relations department by contacting them by telephone at (716) 687-4225 or by e-mail at InvestorRelations@Moog.com.

Business Ethics Code of Conduct

 

We have a written code of business ethics and conduct which applies to all directors, officers and employees. Our Business Ethics Code of Conduct is available on our website at www.moog.com by selecting Investors and then Corporate Governance. Stockholders may request a free printed copy of our Statement of Business Ethics from our investor relations department by contacting them by telephone at (716) 687-4225 or by e-mail at InvestorRelations@Moog.com.

 

Communications with Directors

 

The Board of Directors has provided a process by which shareholders or other interested parties can communicate with the Board of Directors or with the non-management directors as a group. All such questions or inquiries should be directed to the Secretary of the Company, John B. Drenning, c/o Hodgson Russ, LLP, The Guaranty Building, 140 Pearl Street, Suite 100, Buffalo, New York 14203. Mr. Drenning will review and communicate pertinent inquiries to the Board, or if requested, the non-management directors as a group.

 

Director Independence

 

Under the independence standards set forth at 303A.02(b) of the New York Stock Exchange Listed Company Manual, the Board of Directors has affirmatively determined that the Messrs. Raymond W. Boushie, James L. Gray, John D. Hendrick, Kraig H. Kayser, Brian J. Lipke, and Albert F. Myers are independent. Under these standards, the Board has also determined that all Board standing committees, other than the Executive Committee, are composed entirely of independent directors

 

Executive Sessions

 

The Company’s corporate governance guidelines provide that the non-management directors, which for the Company are all of the independent directors, meet without management at regularly scheduled executive sessions. Generally, these sessions take place prior to, or following, regularly scheduled Board meetings. Each executive session has a Presiding Director, who acts as chairperson for the executive session, with the role of Presiding Director rotating among the independent directors.

 

The Audit Committee meets with the Company’s independent auditors in regularly scheduled executive sessions, with the Audit Committee chairperson presiding over such sessions.

 

Board of Directors and Committee Meetings

 

From September 30, 2006 to September 29, 2007, the Board of Directors held four meetings. The following are the standing committees of the Board of Directors and the number of meetings each committee held during the last fiscal year:

 

 

For various reasons Board members may not be able to attend a Board meeting. All Board members are provided information related to each of the agenda items before each meeting, and, therefore, can provide counsel outside the confines of regularly scheduled meetings. It is the Company’s policy that, to the extent reasonably practicable, Board members are expected to attend shareholder meetings. All of the directors attended the 2007 annual shareholders meeting.

The Audit Committee oversees the integrity of the financial reporting process, the independent auditor and the internal audit function of the Company. The Executive Committee, between meetings of the Board of Directors and to the extent permitted by law, exercises all of the powers and authority of the Board in the management of the business of the Company. The Executive Compensation Committee determines the CEO’s compensation and makes recommendations on non-CEO executive compensation plans. The Stock Option Committee is responsible for the administration of the stock option plans of the Company and recommends to the Board of Directors proposed recipients of stock options. The Nominating and Governance Committee evaluates and recommends candidates for the Board of Directors and oversees governance matters.

 

Certain Relationships and Related Transactions

 

Mr. Maskrey, a director for the Company, was also Executive Vice President and Chief Operating Officer until his retirement on October 1, 2005. Mr. Maskrey has a one-year renewable consulting services arrangement with the Company for a base amount of $6,815 monthly, subject to adjustment based upon the level of consulting services provided. The consulting services arrangement was reviewed and approved by the Executive Compensation Committee and the Board. Mr. Maskrey’s consulting services agreement was reviewed and approved by the Executive Compensation Committee and the Board on November 28, 2007.

 

The Audit Committee reviews, and makes recommendations to the Board of Directors with respect to, all related-party transactions and relationships involving a director, executive officer or beneficial holder of five percent or more of either class of the Company’s common stock and the Company. The Company has no separate related-party transaction policy; rather, various policy and procedures, including the Company’s Statement of Business Ethics and the annual directors’ and officers’ questionnaires, require disclosure of transactions or relationships that may constitute conflicts of interest or require disclosure or affect an independence determination under applicable SEC rules.

 

Other Directorships

 

Current directors of the Company are presently serving on the following boards of directors of other publicly traded companies:

 

 

Website Access to Information

 

The Company’s internet address is www.moog.com. The Company has posted to the investor information portion of its website its Corporate Governance Guidelines, Board committee charters (including the charters of its Audit, Executive Compensation, and Nominating and Governance Committees) and Statement of Business Ethics. This information is available in print to any shareholder upon request. All requests for these documents should be made to the Company’s Manager of Investor Relations by calling (716) 687-4225.

 

Nominating and Governance Committee

 

The Nominating and Governance Committee is composed solely of independent directors. The Committee participates in the search for qualified directors. At a minimum, qualifications must include relevant experience in the operation of public companies, education and skills, and a high level of integrity. The candidate must be willing and available to serve and should represent the interests of all shareholders

and not of any special interest group. After conducting an initial evaluation of a candidate, the Committee will interview that candidate if it believes the candidate might be suitable to be a director and may also ask the candidate to meet with other directors and management. If the Committee believes a candidate would be a valuable addition to the Board of Directors, it will recommend to the full board that candidate’s election. A shareholder wishing to nominate a candidate should forward the candidate’s name and a detailed background of the candidate’s qualifications to the Secretary of the Company in accordance with the procedures outlined in the Company’s by-laws. In making a nomination, shareholders should take into consideration the criteria set forth above and in the Company’s Corporate Governance Guidelines. The Board of Directors has adopted a written charter for the Nominating and Governance Committee. A copy of the charter is available on the Company’s website. The Committee met on November 28, 2007 and nominated Messrs. Green, Boushie, and Brady for election at the 2008 Annual Meeting.

 

 

Audit Committee

 

The Audit Committee is responsible for assisting the Board of Directors in monitoring the integrity of the Company’s financial statements, the Company’s compliance with legal and regulatory requirements, the independent auditor’s qualifications and independence, and the performance of the Company’s internal audit function and the independent auditor. The Audit Committee has the sole authority to retain and terminate the independent auditor and is directly responsible for the compensation and oversight of the work of the independent auditor. The independent auditor reports directly to the Audit Committee. The Audit Committee reviews and discusses with management and the independent auditor the annual audited and quarterly financial statements (including the specific disclosures under the “Management’s Discussion and Analysis of Financial Condition and Results of Operations”), critical accounting policies and practices used by the Company, the Company’s internal control over financial reporting, and the Company’s major financial risk exposures.

 

All of the Audit Committee members meet the independence and experience requirements of the New York Stock Exchange and the Securities and Exchange Commission. The Board has determined all Audit Committee members as an Audit Committee financial expert under the rules of the Securities and Exchange Commission. The Audit Committee held six meetings in fiscal year 2007, five of which were regularly-scheduled meetings and one of which was a special meeting held by telephone conference. The Audit Committee met separately with both the independent auditors and the Company’s internal auditors at all regularly-scheduled meetings and periodically met separately with management.

 

 

Stock Option Committee

 

The Stock Option Committee is responsible for approving stock option awards to executive officers and key employees. The Stock Option Committee reviews management recommendations regarding awards to both executive officers and key employees, evaluating such potential awards in relation to overall compensation levels. The Stock Option Committee also reviews such awards with consideration for the potential dilution to shareholders, and limits stock option awards such that the potential dilutive effect is within normally accepted practice. With regard to option grants to Directors, such grants are approved by the full Board of Directors.

 

Executive Compensation Committee

 

The Executive Compensation Committee is responsible for discharging the Board of Directors’ duties relating to executive compensation. The Committee makes all decisions regarding the compensation of the executive officers. In addition, the Committee is responsible for reviewing the Company’s compensation, benefit and personnel policies, programs and plans. The Committee reviews both short-term and long-term corporate goals and objectives with respect to the compensation of the chief executive officer and the other executive officers. The Committee evaluates at least once a year the performance of the chief executive officer and other executive officers in light of these goals and objectives and, based on these evaluations, approves the compensation of the chief executive officer and the other executive officers. The Committee also reviews and recommends to the Board incentive-compensation plans that are subject to the Board’s approval. All of the Compensation Committee members meet the independence requirements of the New York Stock Exchange. The Board of Directors has adopted a written charter for the Executive Compensation Committee. A copy of the charter is available on the Company’s website. The Committee held two meetings in fiscal year 2007.

 

During the last fiscal year, the Compensation Committee retained Hay Group, an independent professional compensation consulting firm, to provide assistance and guidance to the Committee. The Committee approved the services to be provided by Hay Group and the fees to be paid for those services for the fiscal year. On a regular basis, Hay Group advised the Compensation Committee, attended committee meetings and met in executive session with the Committee. In addition, Hay Group provided market analyses for evaluating the components of Moog’s executive compensation program in light of current industry trends and individual executive officer compensation levels based on Moog’s compensation peer group. Hay Group specifically made recommendations regarding the compensation level of our CEO. Moog’s Chief Executive Officer makes recommendations to the Committee regarding the compensation levels of other executive officers. Moog retains Hay Group for compensation consultation services, which are provided independently of the services to the Executive Compensation Committee.

 

Additional information regarding the Committee’s processes and procedures for establishing and overseeing executive compensation is disclosed below under the heading “Compensation Discussion and Analysis.”

 

 

Compensation Committee Interlocks and Insider Participation

 

None of the members of the Compensation Committee has ever served as an officer of Moog or has any relationships with Moog requiring disclosure under any paragraph of item 404 of Regulation S-K. Since the beginning of the last fiscal year, no executive officer of Moog has served on the compensation committee or board of any company that employs a director of Moog.

 

COMPENSATION OF DIRECTORS

 

Non-employee directors are paid $5,000 per quarter and reimbursed for expenses incurred in attending Board and Committee meetings. The aggregate remuneration, excluding out-of-pocket expenses, for all non-management directors was $140,000 for the fiscal year ended September 29, 2007.

 

The Company’s 1998 and 2003 Stock Option Plans provide that options to purchase Class A shares may be granted to non-employee directors of the Company. During fiscal year 2007, Messrs. Boushie, Hendrick, Kayser, Gray, Lipke, Maskrey and Myers each were granted options to purchase 1,538 Class A shares at an exercise price per share equal to the fair market value of a Class A share on the date of grant.

2007 DIRECTOR COMPENSATION

 

 

 

 

Expense Reimbursement

 

Non-employee directors are reimbursed for travel and other expenses in the performance of their duties.

 

Indemnification Agreements

 

Moog has indemnification agreements with our directors. These agreements provide that directors are covered under our directors and officers liability insurance, indemnify directors to the extent permitted by law and advance to directors funds to cover expenses subject to reimbursement if it is later determined indemnification is not permitted.

 

Deferred Compensation Plan

 

This plan allows non-employee directors to defer all of part of the director’s cash fees. Directors deferring cash fees must make elections to defer fees for a calendar year by the end of the preceding calendar year, with new directors having 30 days to make such an election. Directors deferring cash fees accrue interest monthly at the average of the six month Treasury bill rate. Currently, five directors participate in this plan. The following table shows the amounts deferred for fiscal year 2007.

 

The following table shows the number of options of Class A shares granted to each non-employee director during the fiscal year ended September 29, 2007 and the full grant date fair value of each award under SFAS 123(R). Generally, the full grant date fair value is the amount the Company expenses in its financial statements over the awards’ vesting period. Assumptions made in the calculations of these amounts may be found in Note 12 to the audited financial statements in Moog’s Annual Report on Form 10-K for the fiscal year ended September 29, 2007.

 

 

The aggregate number of options on Moog Class A common stock held by each non-employee director as of September 29, 2007 was as follows:

 

 

COMPENSATION DISCUSSION AND ANALYSIS

 

Objectives of the Company’s Compensation Program

 

The objectives of the Company’s executive compensation program are to:

 

(1) Provide a compensation package that will attract, retain, motivate, and reward superior executives who must operate in a highly competitive and technologically challenging environment.

 

(2) Relate annual changes in executive compensation to overall Company performance, as well as each individual’s contribution to the results achieved. The emphasis on overall Company performance is intended to align the executives’ financial interests with increased shareholder value.

 

(3) Achieve fairness in total compensation with reference to external comparisons, internal comparisons and the relationship between management and non-management remuneration.

 

The Company’s executive compensation program is designed to balance competing interests. On the one hand, we recognize that near-term shareholder value can be created by the achievement of near-term results. Recognizing this reality, annual salary increases and cash bonuses are tied to annual EPS performance. On the other hand, the Company’s business, particularly in aerospace and defense, requires that executives make decisions and commitments whose benefits, in financial terms, take years to develop. Our executive stock option program is intended to reward long-term success and to align our executives’ financial interests with those of long-term shareholders.

Looking across the spectrum of U.S. public companies, it’s evident there are a variety of approaches to executive compensation, each of which can be successful under the right set of circumstances. Our Company has used our current approach since Mr. Brady became Chief Executive Officer in 1988. Restructuring charges detracted from the Company’s financial performance in the early 1990’s. However, since 1995 the Company has consistently increased earnings per share and in 12 of the last 13 years the Company has achieved year-over-year earnings per share increases of 10% or more. Since 1997, compound annual growth in earnings per share has been approximately 15%. In turn, our Class A share price has increased from $2.30 at the beginning of fiscal 1995 to $43.94 by the end of fiscal 2007. The Company believes the effectiveness of its relatively simple, straightforward approach to executive compensation has been evidenced by this superior performance record, and, in turn, the superior performance of our stock.

 

Elements of the Executive Compensation Program

 

Salaries

 

The Company uses the Hay Job Evaluation System for all professional employees, including its named executive officers. The Hay methodology is an analytical, factor-based scheme that measures the relative size of jobs in the form of points within an organization. Base salaries are determined on an annual basis with reference to salary range data provided by the Hay Group.

 

Management Profit Share

 

The Company’s senior leadership, both managerial and technical, numbers about 300 persons. This entire group participates in a discretionary profit sharing program in which the payout each year is a function of the year-over-year growth rate in the Company’s earnings per share.

 

The Company uses this single metric to underscore the importance of collaboration at all levels of leadership. The Company supplies products to a diverse array of customers in a variety of markets. The common thread is the technology used in high-performance motion control and fluid flow systems and our key technical resources are transportable from one segment to another in response to fluctuating customer demands. Having our senior leadership focus on “what’s good for the Company” has been an important factor in the Company’s consistent performance.

 

Stock Options

 

Over the Company’s history, stock option awards have been a consistent element of executive compensation. The 1998 plan covers the award of options on 2,025,000 shares of Class A common stock and will terminate in December 2007. The 2003 plan covers an additional 1,350,000 Class A shares which will terminate in 2012. In the interest of maintaining alignment between management and shareholders interests, the 2003 plan imposes a three-year holding period on option shares unless previously owned stock is used in payment of the option exercise price. All stock option awards are priced at the market-closing price on the day the Stock Option Committee approves the option awards.

 

Stock options issued to executive officers are intended to be incentive stock options (ISO’s), and those issued to Directors, as non-employees, are non-qualified stock options. Stock options issued to executive officers and directors cannot be exercised until at least one year after the option grant. Each executive officer option grant contains a vesting schedule, with the vesting schedule constructed to maintain the treatment of the options as ISO’s. However, in certain cases options granted to executive officers will be treated as non-qualified due to IRS limitations. Stock options issued to Directors do not have a vesting schedule and can be exercised at any time starting one year after the option grant.

 

Stock options are generally granted once a year, typically at the Fall Board meeting. The options are priced at the New York Stock Exchange closing price on the day the Board approves the option grants. It is Company policy not to re-price option grants.

Retirement Programs

 

Our U.S. based named executive officers participate in a defined benefit retirement plan covering Moog’s U.S. based employees, with Dr. Huckvale participating in a similar plan for our U.K. employees. The Company believes that a key element in attracting and retaining employees at all levels of the organization includes a retirement plan. The Company has long provided a defined benefit plan, and new U.S. employees hired after January 1, 2008 will be covered under a defined contribution plan. The benefit accrual available to U.S. based executive officers under the qualified defined benefit plan is limited to $220,000 in base compensation. The Company maintains a Supplemental Executive Retirement Plan (“SERP”) for its executive officers to bridge the gap between legally mandated limits on qualified pension plan benefits and the retirement benefits offered at comparable public companies. While the Company formally funds the qualified defined benefit plan, the SERP is not formally funded. However, the Company has set aside funds in a Rabbi Trust, with the intention that these funds may be available to meet the Company’s SERP obligations.

 

The value of pension benefits for each named executive officer can be found in the table on page 24.

 

Medical Coverage

 

Our executive officers participate in the same health insurance programs available to all employees. In addition, our executive officers have coverage under an enhanced medical insurance policy that covers all unpaid healthcare expenses up to a limit of $25,000 per year. This enhanced coverage plan was established many years ago in accordance with then industry practice for senior executives. We believe that conforming in this way to industry standards is an aid in executive retention.

 

Vacation, Disability and Group Life Insurance

 

Named executive officers participate in the same vacation, disability and life insurance programs as all other Moog employees. Life insurance coverage for employees is based upon a multiple of salary, with the multiple for named executive officers’ generally two times annual salary.

 

Our vacation plan provides an annual basic benefit of three weeks once an employee has reached five years of service. In addition, our plan has a unique feature. Beginning on the tenth anniversary of employment, in addition to the standard three weeks vacation, each employee is awarded an additional seven weeks of vacation. This award occurs again every five years. This plan was created by our founder, Bill Moog, with the idea that every few years each employee might have the opportunity for a brief sabbatical. This feature serves to attract and retain key talent. The unused vacation accumulates annually. Under certain circumstances, such as when employees have a significant personal need such as major home repairs, high medical costs, college tuition bills for their children, among others, employees can exchange unused vacation for cash to meet their personal obligations. The payment of cash in lieu of vacation is subject to management approval, with the employee needing to demonstrate financial need. As a practical matter, many long-term employees retire with a substantial amount of unused vacation which is then paid in cash.

 

Termination Benefits

 

Named executive officers and other members of executive management are provided Termination Benefit Agreements that are triggered under certain circumstances, including a change in control. Under these Agreements, executive officers receive salary continuance for up to three years based upon length of service, management profit share on a prorated basis in the year of termination, medical coverage, life and disability benefits and club dues for one year. Change in control agreements are designed to retain executives and provide continuity of management in the event of a potential change in control. The Company feels that these severance and change in control benefits are required to attract and retain executive talent in a marketplace where such benefits are commonly offered. Further information can be found in the Potential Payments Upon Termination or Change in Control section on pages 26-28.

Other Benefits

 

The Company reimburses fees for membership in certain private clubs so that the company’s executives have these facilities available for entertaining customers, conducting Company business and fulfilling community responsibilities.

 

THE PROCESS FOR DETERMINATION OF COMPENSATION

 

The Executive Compensation Committee of the Board is composed solely of independent, non-employee Directors. The Committee meets in executive session to determine CEO compensation, and has final approval on all elements of key executive compensation including salaries, profit sharing, and other benefit programs.

 

Each year the Committee is provided with salary ranges for each of the executive officers. The ranges are developed using the Hay Group survey data based on job evaluation points. In 2006, Hay Group provided the Committee with a comparative market review of executive compensation including base salaries, short-term and long-term incentives. The Hay Group made comparisons to two groups of companies. The first was their entire data base of industrial companies. The second comparison was a group of fifteen companies whose businesses are similar to Moog’s and whose revenues are reasonably comparable. This group consisted of Rockwell Collins, Alliant Techsystems, DRS Technologies, Curtiss- Wright, BE Aerospace, Esterline, the Triumph Group, Woodward Governor, Hexcel, Kaman, EDO Corp., Orbital Sciences, Aeroflex, Aviall, and Engineered Support Systems. An additional output of that study was a proposal for a new long-term equity incentive plan which is described starting on page 29. During fiscal 2007, the Committee engaged the Hay Group to do a thorough review of all executive compensation including benefit programs. Once again, the Hay Group will reference their entire data base and also the same group of fifteen peer companies except that Aviall and Engineered Support Systems are replaced with Teledyne and AAR Corp.

 

The process for setting annual salaries is one wherein the CEO makes recommendations and the Committee approves or adjusts those recommendations for a final determination. As part of this process, the CEO prepares a performance appraisal for each executive officer which is reviewed in some detail by the Committee. These performance appraisals take into consideration: 1) the outcomes achieved by the unit or function for which the officer is responsible, 2) the conduct and contribution of the officer in achieving those results, 3) the support provided by the officer and the organization he manages in achieving overall Company results, and 4) the officer’s achievements in developing organizational strength for the future. In addition to the review of each officer’s performance appraisal, the CEO and the Committee review the relationship of the officer’s salary to the Hay salary range data provided for each officer position. The Committee generally expects that a new officer with limited experience will be in the lower quartile of the survey. As the officer’s capabilities develop and achievements accumulate, the Committee generally expects the officer will move through the midpoint of the survey range and ultimately be positioned in the upper quartiles. When appropriate, the Committee will make adjustments to achieve this positioning. The Committee is mindful of the IRS limitation on deductibility of compensation over $1 million, and only Mr. Brady’s compensation for 2007 has exceeded the IRS limitation.

 

As mentioned earlier, the named executive officers of the Company participate in a Management Profit Sharing Program along with other senior management of the Company. We believe that in order to be effective, incentive bonus plans should be simple and transparent. In line with this thinking, the payout under the Management Profit Share Plan is strictly a function of the annual percentage growth in the Company’s earnings per share. Named executive officers, including the CEO, receive an annual award which is, as a percentage of salary, 1.33 times that year’s percentage growth in earnings per share. The Executive Compensation Committee has the prerogative to alter the amounts awarded, but the Committee has not exercised that prerogative in recent years. The Company does offer the opportunity to defer profit share payments, but in recent years only one of the named executive officers chose to defer one year of profit share. On any amounts deferred, the officer receives a return equivalent to a six month treasury bill, with interest accruing monthly.

THE PROCESS FOR DETERMINING STOCK OPTION AWARDS

 

The Stock Option Committee of the Board is composed solely of independent non-employee directors. Currently this Committee has the same membership as the Executive Compensation Committee, although the chairpersons are different. The Company believes that stock ownership on the part of executive officers serves to align the leadership of the Company with the interest of shareholders, and that a stock option plan is an attractive and effective way for the officers to accumulate a stock ownership position. The Committee does not use a formulaic approach, but in years when performance is considered adequate, the Committee invites the CEO to make recommendations for stock option awards. These recommendations are either approved or adjusted by the Committee. With regard to the CEO, stock option awards are determined by the Stock Option Committee. The Committee has always been mindful of the relationship between the number of options awarded and the shares outstanding. Currently, the Company’s outstanding unexercised options divided by total outstanding shares is 4.4%. In each of the last three fiscal years, we have awarded options on 27,000 shares for the CEO and 20,250 shares for each of the executive officers. During fiscal year 2007, the total of options awarded to all Officers and Directors was 260,516 shares or 0.6% of shares outstanding.

 

The Committee has proposed to the Board and the Board is proposing to the shareholders a new plan which would authorize the award of stock-settled stock appreciation rights instead of incentive stock options or nonqualified stock options. This plan would allow for the inclusion of a larger group of awardees and make more efficient use of the shares involved. See Proposal 2 starting on page 29 regarding the 2008 Stock Appreciation Rights Plan.

 

THE PROCESS FOR CHANGING OTHER EXECUTIVE BENEFITS

 

Any changes in benefit plans which include and affect executive officers are presented to the Compensation Committee for review and approval and presentation to the entire Board.

 

EXECUTIVE COMPENSATION COMMITTEE REPORT

 

The Executive Compensation Committee of the Board of Directors has reviewed and discussed with Moog’s management the above Compensation Discussion and Analysis. Based on this review and these discussions with management, the Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement.

 

 

2007 SUMMARY COMPENSATION TABLE

 

 

 

 

 

 

 

2007 GRANTS OF PLAN-BASED AWARDS

 

The following table summarizes the grants of equity awards made to the executive officers named in the Summary Compensation Table during the fiscal year ended September 29, 2007.

 

 

 

 

OUTSTANDING EQUITY AWARDS AT 2007 FISCAL YEAR-END

 

 

 

 

 

 

2007 OPTION EXERCISES AND STOCK VESTED

 

The following table provides information for the executive officers named in the Summary Compensation Table regarding the exercises of stock options during the fiscal year ended September 29, 2007.

 

 

 

 

 

 

 

 

 

EQUITY COMPENSATION PLAN INFORMATION

 

The Company maintains the 1998 Stock Option Plan and 2003 Stock Option Plan. Set forth below is information as of September 29, 2007 regarding shares of Class A Common Stock that may be issued under the plans.

 

PENSION BENEFITS

 

Moog maintains a tax-qualified defined benefit retirement plan covering most employees. The plan will be closed to new participants as of January 1, 2008 and replaced with a defined contribution plan. The qualified defined benefit plan is funded by employer contributions. Currently, all of the named executive officers participate in the Moog Inc. Employees Retirement Plan (the “Moog Retirement Plan”).

 

Because the Internal Revenue Code limits the benefits that may be paid from the tax-qualified plan, the Moog Inc. Supplemental Executive Retirement Plan (the “Moog SERP”) was established to provide retirees participating in the qualified plans with supplemental benefits so they will receive, in the aggregate, the benefits they would have been entitled to receive under the qualified plan had these limits not been in effect. A Rabbi Trust was established under which certain funds have been set aside to satisfy some of the obligations under the Moog SERP. If the funds in the Trust are insufficient to pay amounts payable under the Moog SERP, the Company will pay the difference.

 

MOOG EMPLOYEES’ RETIREMENT PLAN

 

Under the Company’s Employees’ Retirement Plan, benefits are payable monthly upon retirement to participating employees of the Company based upon compensation and years of service and subject to limitations imposed by the Employee Retirement Income Security Act of 1974 (“ERISA”). The Employees’ Retirement Plan is administered by a Retirement Plan Committee and covers all employees with one year of service and a minimum of 1,000 hours of employment.

 

Benefits payable under the Plan are determined on the basis of compensation and credited years of service. It is a career average plan. Effective January 1, 1998, Plan compensation for prior service as of October 1, 1990, is the base annual rate of pay, plus overtime pay and shift differential compensation for calendar year 1989, or the base annual rate of pay as of January 1, 1988, if higher.

 

Future service compensation is the basic annual rate of pay for the preceding plan year plus overtime and shift differential compensation, limited to $200,000 (as indexed) from October 1, 2002 forward.

 

The prior service benefit is 1.15% of the first $20,000 of prior service compensation, plus 1.75% of the excess, multiplied by prior service, but not less than the accrued benefit as of September 30, 1990, determined under the prior Plan.

 

The future service benefit for each year of credited service is 1.15% of the first $20,000 of future service compensation for such year, plus 1.75% of the excess. Any participant with five years or more of service receives a minimum pension of $2,400 per year, reduced pro rata for credited service of less than 15 years.

 

The Employees Retirement Plan will be closed to new employees hired on or after January 1, 2008. New employees hired after this date will be covered under a defined contribution plan.

 

SUPPLEMENTAL RETIREMENT PLAN

 

The Company also has a Supplemental Retirement Plan (SERP) applicable to eligible officers of the Company with at least 10 years of continuous service upon retirement at age 65 or older.

 

The Supplemental Retirement Plan provides benefits for an eligible officer who retires at age 65 with 25 years of service. The benefit is equal to 65% of the average of the highest consecutive three-year base salary, plus the highest annual profit share paid within three years of such officer’s retirement, less any benefits payable under the Employees’ Retirement Plan and less one-half the primary Social Security benefit of such officer at age 65. An officer 60 or more years of age, whose combined chronological age and years of service equal or exceed 90, may elect early retirement and receive reduced benefits. A reduced benefit is available for officers 65 years of age with between 10 and 25 years of service.

A participant’s benefits are vested in the event of an involuntary termination of employment other than for cause, as defined in the Supplemental Retirement Plan. For purposes of the Supplemental Retirement Plan, a change in duties, responsibilities, status, pay or perquisites which follows a change of control of the Company, as defined therein, is deemed an involuntary termination.

 

The years of credited service and present value of accumulated benefits for the named executives under the Employees’ Retirement Plan and the Supplemental Retirement Plan are:

 

2007 PENSION BENEFITS TABLE

 

 

 

 

Assumptions:

 

The “Present Value of Accumulated Benefits” is based on the same assumptions as those used for the valuation of the plan liabilities in Moog’s annual report on Form 10-K for the fiscal year ended September 29, 2007, and are calculated as of the August 31, 2007 measurement date. The assumptions made in the calculations of these amounts may be found in Note 9 to the audited financial statements in Moog’s Form 10-K.

 

All SERP benefits are assumed to be paid monthly in accordance with the plan document.

 

“Credited Service” includes only service with Moog (or certain acquired employers). In general, Moog does not grant extra years of credited service.

 

2007 NON-QUALIFIED DEFERRED COMPENSATION

 

 

 

 

POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL

 

The Company has entered into Employment Termination Benefits Agreements (“Termination Agreements”) with its executive officers. These Termination Agreements cover termination as a result of death, disability, or retirement, termination for cause, voluntary and involuntary termination of employment, as well as involuntary termination after a change in control. The following is a summary of the termination benefits provided under various circumstances.

 

Payments Upon Death or Disability

 

In the event of the death of an officer, the estate or surviving spouse will receive a payment of six months salary, receive a management profit sharing payment pro-rated to the date of the officer’s death, and any unused vested vacation. A payment of approximately two times annual salary will be paid under the Company’s Group Life Insurance plan, subject to a cap of $1,046,500. The estate or surviving spouse will receive payments under the Company’s pension and 401(k) plans, and all unexpired stock options will fully vest, and the estate or surviving spouse will have one year to exercise these options.

 

In the event an officer becomes disabled, the officer is entitled to the same benefits, as described above, with the exception of life insurance and salary continuation. The officer also will receive payments under the Company’s disability plan.

 

Termination for Cause

 

Under the Termination Agreements, “cause” is considered a harmful act or omission constituting a willful and a continuing failure to perform material and essential employment obligations, conviction of a felony, willful perpetration of common law fraud, or any willful misconduct or bad faith omission constituting dishonesty, fraud or immoral conduct which is materially injurious to the financial condition or business reputation of the Company. In this case, the officer is entitled to all benefits vested under retirement plans, and payment of unused vested vacation. The officer is not entitled to management profit share, no severance is provided, and all stock options expire.

 

Voluntary Termination

 

When an officer voluntarily terminates employment with the Company, the officer is entitled to receive all pension benefits accrued under the Company’s pension plans up to the date of termination, and payment for all unused vested vacation. Stock options become fully vested on the day prior to the officer’s termination.

 

Involuntary Termination Without Cause and Involuntary Termination After a Change in Control

 

The termination benefits provided to an officer under the termination agreements in the case of involuntary termination without cause and in the event of involuntary termination after a change in control are identical. The officer will receive salary continuance for no less than 12 months and no more than 36 months, depending on length of service. Management profit share will be paid on a pro-rated basis for service up to the date of termination, and any unused vested vacation will be paid. The Company will pay, for one year after involuntary termination or involuntary termination after a change in control, medical, life and disability premiums on behalf of the officer, one year of auto related expenses, as well as one year of club membership dues for which reimbursement was provided by the Company. The officer is entitled to all vested benefits under the employee’s retirement plan, and the right to exercise all options within 12 months of termination. The Termination Agreements provide that an officer cannot compete with the Company during the term of the Termination Agreement, and in the event of an involuntary termination after a change in control, until the last payment of any benefits to the officer under the Termination Agreement. Each Termination Agreement also requires each officer not to disclose confidential information of the Company during the term of the Termination Agreement or thereafter.

The following table shows potential payments to the named executive officers upon disability and death, voluntary termination, involuntary termination without cause or involuntary termination following a change in control. The amounts shown assume that the termination was effective September 29, 2007, the last business day of the fiscal year. The actual amounts to be paid can only be determined at the actual time of an officer’s termination.